Episode 4: the Investors Committee


Thomas Miller, Chair of the Investors Committee of the FTTH Council Europe, shares his perspective on the evolution of the FTTH business in the months to come. While providing guidance to those willing to navigate their way to profitable investments in full-fibre networks, Thomas also presents some of the activities we can expect from the committees in the near future. In this episode, our guest will answer to these questions and much more:

  1. How do you see FTTH investments in Europe evolving in the next 12 months?
  2. From an investor perspective, what are the key factors you keep into account while assessing fibre networks financing?
  3. It looks like financing fibre optics is becoming more difficult nowadays: how can investors and entrepreneurs successfully navigate their way to profitable investments?
  4. What can you tell us about the upcoming initiatives from the Investors Committee?

Read the full interview below to get the answers to these questions.

 

How do you see FTTH investments in Europe evolving in the next 12 months?

Over the past decade, the European fibre sector has attracted billions of euros in investment. Thus, many investors have built up large exposures in the fiber sector, often to their limit. Which is a technical reason why the market for fibre investment in 2023 has become more challenging. More importantly, the mentality of "build and they will come" is clearly outdated. In some regions, providers are struggling to meet their economic targets.  

Overall, investors are taking a much closer look at fibre operators than they were a year ago. This makes it difficult for some providers to raise the funds they need.

Existing players may have to rethink their growth strategy and think about cooperating with competitors or even cutting costs and optimizing processes. In the UK and Germany in particular, we are likely to see more restructuring. Mergers, acquisitions, and joint ventures will enter the stage. It’s climate change, if you will. 

In the picture on the right, Thomas Miller moderating "Panel 5 - Investors Panel" during the FTTH Conference 2023 in Madrid.

From an investor perspective, what are the key factors you keep into account while assessing fibre networks financing?

Clearly, investors require a good track record. The focus is much more on ARPU and how many of the homes passed have actually signed up. Speaking of “homes passed”, this KPI has lost much of its relevance. If anything, investors are looking at “RFS” (“ready for service”). But, to reiterate a key fact, investors are paying much more attention to cash generation today than they did in 2022, which means greenfield investments (i.e., investments with no track record) are often off the radar.

Investors are also much more aware of vendors' business models, especially when comparing wholesale to retail. They also value providers adapting to the "climate change" that has gripped the fiber landscape. This means some are likely to support reasonable plans on how to successfully address the challenges ahead. Such support may include short-term extensions of debt or accommodating waiver requests.


It looks like financing fibre optics is becoming more difficult nowadays: how can investors and entrepreneurs successfully navigate their way to profitable investments?

I didn't mean to sound overly pessimistic. Fibre is a key technology for Europe, we need this infrastructure. There is therefore no doubt that we will manage the roll-out overall. Like in every dynamic market opinions, strategies and forecasts are diverging more strongly. In such an environment, it is essential to base decisions on a solid foundation of good information.

The Investors Committee would like to contribute to this with our Investment Tracker, which we produce twice a year together with Macquarie. In it, we show current developments in credit volumes, interest rates, KPIs, covenants and information requirements for the main European regions.

In addition, our Guide to Successful Fibre Business Models provides a good overview of the business models relevant on the market. These differ significantly in terms of opportunities and risks and thus in the structure of an investment.

 

What can you tell us about the upcoming initiatives from the Investors Committee?

It is certainly not easy to keep track of things in the current environment. But that is precisely why our approach is not fatalistic. We firmly believe that the future can be shaped. To this end, it is more important than ever that entrepreneurs and investors talk to each other. We have our Investors Committee for this exchange. With the Investment Tracker and the Guide to Successful Fibre Business Models, we continue to produce decision-relevant information. However, sensemaking is also important, and that is what we do in the dialog between our committee members.

 

More about Thomas Miller


 

 

Since 2006 at Hamburg Commercial Bank, Executive Director. Publisher of several studies on fiber financing. Writer and speaker for bank financing. University lecturer at Hamburg School of Business Administration and International School of Management. Head of the FttH Council Investors Forum.

 

How to half energy consumption of broadband network equipment to meet sustainability targets

Member company: Nokia
Country or geographical scope: Global
Period: 2019-2030
Company type: Vendor/Reseller
Product/service category involved: FTTP access nodes

Abstract
Investing in power-efficient network technologies can significantly reduce the carbon footprint of broadband access networks. Network operators should consider accelerating the phase-out of copper, selecting the most power-efficient network equipment, and upgrading PON networks to XGS-PON or 25G PON to increase the bits delivered per watt consumed. For this purpose, Nokia developed a new chipset that brings power savings of more than 50% in the broadband network and helps operators to meet their emissions goals with growing usage and increasing penetration of broadband.


Context

Climate change is the greatest challenge of our time and every organization has a role to play in minimising the carbon footprint of their activities. The ICT industry today accounts for more than 2% of global greenhouse gas (GHG) emissions[1], approximately the same as all air traffic. However, ICT helps consumers, businesses and other industries become more sustainable. Digitalization in general and broadband in particular contribute by cutting transportation, creating gains in productivity, and boosting economic growth for individuals, countries, cities, and society as a whole. So, despite its own carbon footprint, ICT actually carries a 7-fold net positive effect on emissions, reducing global CO2 emissions by up to 15%1. Nevertheless, network operators must continue to reduce the emissions created by their own activities.
 

Solutions

The power consumption—and hence the carbon emissions—of a broadband network is primarily dictated by the chipsets used in network equipment. Nokia has developed an optimized System-on-a-Chip (SOC) that now resides in all our network nodes. This chipset enables line cards for fibre and copper broadband with higher port densities and higher throughput per watt. In turn, this leads to smaller nodes, which occupy less space, use less power and can be passively cooled (up to operating temperatures of 65°C). When installed in street cabinets, they require less grid protection equipment, smaller power supplies and only “heatwave days” fan ventilation backup. We also have integrated energy-saving features, such as powering down unused optical modules (which is better than just switching the laser off per port, saving up to 1.5W for GPON), and improved intelligent fan tray control algorithms to reduce energy consumption and cooling when not required.

This brings power savings of more than 50% in fixed broadband networks and helps operators to meet their emissions goals. We are already shipping broadband solution with this chipset to more than 150 operators. 

The second path for operators to reduce emissions is the transition from copper to fibre broadband networks. Future-proof scalability and higher capacity make full-fibre networks the most energy efficient solution. Replacing copper-based DSL connections with full fibre-to-the-home breaks the link between bandwidth demand and power consumption. VDSL requires many more active components in the network than PON and so consumes more power. But when one also considers the far greater bandwidth of GPON compared to VDSL, the net gain is a 12-fold improvement in bits delivered per watt consumed. XGS-PON takes this even further, delivering five times the bandwidth of GPON for only twice the power consumption, with another positive impact on the energy efficiency.
 

Results

Nokia joined the Science-Based Targets (SBT) initiative and are now targeting to cut emissions by 50 percent between 2019 and 2030 across our value chain. SBT provides companies a clearly defined pathway to take action on how much and how quickly they need to reduce their greenhouse gas (GHG) emissions in line with the 1.5°C scenario.

Achieving this target requires efficiency improvements in network power consumption, continuously driving for more data bits per kilowatt of energy. As part of this commitment, Nokia and other industry players report product energy consumption according to the Code of Conducts for Broadband Communication Equipment from the European Commission. The Code sets the (maximum) electricity consumption for fixed broadband equipment sold in the EU and manufactured or procured by participating service providers, network operators, equipment and component manufacturers.

All this results in the cumulative effect of advances in technology on power consumption as shown in the graph.

The first few years of reductions are driven by the introduction of optimized, energy efficient chipsets, followed by the transition from copper to fibre. Our forecasts predict that we will be able to reach a 50% reduction from the Science-Based Targets initiative.

Note that this graph shows absolute values, and we take into account that across this decade we will deliver higher speeds to more people. XGS-PON and 25G PON will gradually overtake GPON. The blue line shows that the explosion in demand for data does not automatically lead to a massive increase in power consumption. Overall, since 2007, broadband power consumption has been reduced by 38% while speeds have increased by a factor of 64.
 

Conclusions

As broadband enables consumers and businesses to reduce their own carbon footprint, the more people connected to high-speed broadband, the better it is for the planet. Most fixed broadband operators are in the process of upgrading older copper and cable networks to deep fibre or full fibre-to-the-home networks. Accelerating these projects will accelerate the savings in power consumption and greenhouse gas emissions. Selecting the most power-efficient equipment in these network upgrades will also contribute significantly to meeting sustainability targets. Finally, successive generations of PON technology—XGS-PON and 25G PON—further improve the bits delivered per watt consumed; accelerating PON network upgrades will further enhance the sustainability of a broadband network.
 

Further reading

[Blog] Sustainability: how Nokia is helping broadband meet the 1.5°C target
[Blog] Why it’s vital to strive for Broadband Zero
[White Paper] Broadband Zero - Delivering the benefits of broadband while minimizing environmental impact
 

Contact

Filip de Greve, Product Marketing Manager, Nokia Fixed Networks
filip.de_greve@nokia.com


[1] Source: European Commission fact sheet, “Supporting the green transition”, February 2020

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